Democrats may put Big Three in driver's seat

As execs from GM, Ford and Chrysler meet Bush, Democrats' gains could provide a lift to the automakers' legislative agenda.

By Chris Isidore, CNNMoney.com senior writer

November 14 2006: 10:26 AM EST

NEW YORK (CNNMoney.com) -- Top executives from GM, Ford and Chrysler finally get their day with President Bush Tuesday - and their meeting couldn't be more well timed.

The auto executives head to Washington with more leverage now that Democrats won control of Congress in last week's mid-term elections, industry experts and officials said.

President Bush is set to meet with the heads of the Big Three automakers at the White House Tuesday.

The executives from Detroit's Big Three - General Motors (Charts) CEO Rick Wagoner, Alan Mulally, the new CEO of Ford (Charts), and Tom LaSorda, the head of DaimlerChrysler's (Charts) North American unit, Chrysler Group - have a long list of issues where they want government help. But they won't be asking for bailouts or loan guarantees, even as they struggle with huge losses that have led GM and Ford to slash 55,000 hourly workers in North America.

Instead, the meeting, which was postponed by the White House twice over the last 14 months, is to deal with issues ranging from health care and international trade, to alternative fuel cars and light trucks. The executives are due to meet with the president Tuesday afternoon at the White House.

Experts and some officials at the automakers said they believe the auto industry is better positioned to push its legislative agenda now that Democrats control both houses of Congress and with the clock already ticking towards the 2008 election campaign.

"A Democratic-controlled Congress will have a more sympathetic ear than the White House has had," said John Casesa, an industry consultant and former stock analyst for Merrill Lynch.

The three executives will not be stopping by Capitol Hill to meet the new Democratic leadership, although they did meet with Democratic and Republican leaders in Congress when one of their previous White House meetings was cancelled in May.

Casesa said health care could be the one area where the auto industry could see some financial relief with the new Congress. The three companies estimate they'll spend more than $12 billion on health care this year for more than 2 million employees, retirees and their family members in the United States.

One of the biggest lifts the automakers could get is an elimination of the so-called "doughnut hole" in the Medicare prescription drug benefit, whereby seniors are required to pay for drugs after spending about $2,250 under the new program until they reach another threshold of $5,100, at which point coverage kicks in again.

For most Medicare recipients, they are responsible for buying the nearly $3,000 in drugs. But for retirees and family members of the Big Three, auto companies pick up that cost.

Sean McAlinden, chief economist for the Center for Automotive Research, estimates that closing that gap would save the automakers at least $500 million a year.

"This is probably No. 2 or No. 3 on the list of things that Nancy Pelosi wants to do, right behind the minimum wage and Iraq," said McAlinden, referring to the Democratic congresswoman poised to be the new Speaker of the House. "All they need from Bush is a pledge not to veto Democrat's attempt to fill in the doughnut hole."

But McAlinden said it will be expensive for Democrats to pay for the new benefit. Some estimates put the cost at $200 billion over the next decade.

Officials with the auto companies are cautious about what they say about their chances for legislative success with Democrats now in control of Congress.

"We are hopeful that the new Congress will focus on key issues related to energy security, health care and trade that affect not only the auto industry, but all of America's economy," said Ziad Ojakli, a group vice president for Ford.

"The challenge with health care is the complexity," said Greg Martin, spokesman for GM. "You can only take encouragement that everyone has expressed a desire to work together. It's an issue important to the American people and to businesses, and it's been expressed as a priority for the new Congress."

But broader changes that could save the auto industry billions a year - such as shifting catastrophic health care costs to government - are a long way from being passed. That's why automakers will need to win most of their cost savings in negotiations with the United Auto Workers union, not the White House or Congress, according to experts.

"Detroit will have to do its own heavy lifting on health care long before Congress gets around to doing what it needs," said Casesa.

Energy and environment

The automakers could find a more sympathetic ear in the White House when they talk about making alternative fuels likeethanol more widely available.

The Big Three have already sold about 7 million "flex fuel" vehicles that can run on a mixture of either 85 percent ethanol and 15 percent gasoline, or traditional gasoline. But less than 1,000 gas stations now offer the ethanol fuel known as E85.

"I think we'll see something on the energy issues and biofuels, that type of thing, come out of this meeting," said David Cole, chairman of the Center for Automotive Research.

The automakers won't say if they expect any kind of statement of support from the White House Tuesday, but they say the flex fuel issue is one they are eager to talk about.

"There's a tremendous opportunity to displace oil through flex-fuel vehicles," said GM's Martin. "That will be part of the discussion."

But Democrats could pose a risk to the Big Three in this area if they pass tougher fuel economy standards, which the automakers are less well positioned to meet due to their dependence on SUVs and pickups for the bulk of their sales.

Experts say the auto industry is hoping that the expected elevation of Rep. John Dingell, D-Mich., to chairman of the House Energy and Commerce Committee will keep an increase in fuel economy rules in check.

And even though Ford and Chrysler cut back production of some of their pickups this year due to weak sales and high gas prices, a promise of more ethanol pumps is not likely to make an immediate change in automakers' fortunes.

Also to emphasize their commitment to the environment and fuel efficiency, GM's Wagoner plans to drive to the White House in the Saturn Vue Green Line, the automaker's first vehicle using a fuel-efficient hybrid engine, while Mulally is to drive a hybrid Ford Escape compact SUV, which has been on the market for several years.

But both of those automakers badly trail Japanese automakers in hybrid sales, although they are ahead of Chrysler, which doesn't have a true hybrid offering. LaSorda will be driving a Sebring, a fuel efficient car with a traditional gas engine.

Trade

Trade will be another area that winning substantial changes will be difficult. The automakers will talk about what they see as unfair interference in currency markets by the Japanese to keep the value of the yen low and make competition with Toyota (Charts), Honda (Charts) and Nissan (Charts) more difficult.

But the administration has only a limited ability to force the Japanese to move towards a stronger yen, just as it has been unable to win changes from the Chinese government on Beijing's currency.

"We've already had a weak dollar policy, in reality," said Casesa.

The automakers will also discuss steel tariffs that have boosted steel prices in the United States. The U.S. automakers have already appeared before the U.S. International Trade Commission to challenge the tariffs.

"It might only raise the cost of steel by about $100 per vehicle, but that's money that would otherwise be falling right to the bottom line," said the Center for Automotive Research's McAlinden.

But those tariffs, which are unpopular with steel users, are very popular with steelmakers in Indiana and Ohio, which could again be battleground states in the upcoming election. So winning support for an end to the tariffs, even with the new political landscape, could be difficult.